When an insurance claim is made for damage to the insured’s goods, the insured will normally be the recipient of the services provided, as the insurance will usually provide for a cash indemnity to cover the insured loss or to replace the goods damaged.

However, some contracts specify that the goods will be repaired by the provider of the insurance. In these cases, the supply of the repair service will be to the insurance provider. Currently where one of the parties is located outside the EU, where VAT is due will depend upon where the recipient of the service is located.

HMRC says some insurance firms have used this to their advantage and set up offshore entities to receive repair services free of VAT. This gave them a competitive advantage over UK-based insurers.

To level the playing field, with effect from 1 October 2016, the supply of repair services carried out as the result of an insurance claim made to an insurer, or their agent, located outside the EU will be covered by a new use and enjoyment provision.

This means VAT is due where the service is consumed and VAT will be due on goods repaired for people living in the UK. UK repairers will therefore have to charge VAT to insurers or their agents that are based outside the EU.

HMRC has published further guidance in the VAT place of supply of services manual and has also updated VAT Notice 741A to include the new measure.

Revenue and Customs Brief 15 (2016): VAT - use and enjoyment of insurance repair services is here: https://www.gov.uk/government/publications/revenue-and-customs-brief-15-2016-vat-use-and-enjoyment-of-insurance-repair-services/revenue-and-customs-brief-15-2016-vat-use-and-enjoyment-of-insurance-repair-services

HMRC VAT Notice 741A is here